It’s an expensive time to be a homebuyer - prices are near historic highs and mortgage rates have been above 6 percent for all but one week since September 2022.
Prospective buyers are losing hope with 21 percent giving up on owning a home, according to a 2026 study from moving company Storable.
But credit scores may provide a solution. A good score can have a big impact on interest rates for certain home loans, which can raise or lower mortgage payments.
But what is a good credit score? It depends on who you ask.
“A good credit score is one that allows the borrower to get the financing they need to complete the purchase of the home,” said Doug Perry, a strategic financing advisor at real estate business platform Real Estate Bees. “Loans are available for just about every score except the very lowest.”
Other experts argue that specific numbers are needed when comparing government-backed home loans and conventional (non-government-backed) home loans. Whichever the case, experts tend to agree that credit scores play a role in mortgage costs.
Keeping score
Mortgage lenders determine a credit score by taking the middle number of a borrower’s three bureau credit scores: Equifax, Experian, and TransUnion. If a borrower’s bureau scores are 680, 700, and 715, the mortgage lender uses 700, said MortgageLoans.net founder Kevin Havard. If co-applicants apply, mortgage lenders take the lower middle score of the two.
Certain mortgage programs will accept borrowers with scores in the high 500s, Perry said, but borrowers may not like what the loan will cost them.
“Loans are available for just about every score except the very lowest, but borrowers might not be agreeable to the pricing and down payment requirements those low credit score loans bring with them,” Perry wrote in an email to The Independent. “Bottom line is, the lower the credit score, the higher the price.”
Conventional wisdom
Credit scores are critical to the interest rate a lender offers to conventional-mortgage borrowers.
Conventional loan lenders view credit scores through 20-point tiers starting at 580 and going up to 760 and beyond, Harvard said. Important tiers within this range include include the following he said:
- 620 to 639: The usual minimum score for conventional loans
- 680-699: Scores in this range make a “noticeable” impact on rates compared to lower scores
- 760 and above: The best available rates are found in this range
Moving up from one tier to another can have a significant impact on rates for some borrowers.
“A 30-point difference in a credit score can have a significant impact on an improvement in an interest rate,” Schachter said. “If you have a 670 score and now have a 700 score, on a conventional loan, the rates can improve by .25 [percentage points] or more.”
That small change can have a big impact on a monthly mortgage and how much interest borrowers pay. If a borrower purchased a home at the most recent average price, $534,000, a 0.25 percent-point difference could reduce a monthly mortgage payment by nearly $100 and total interest paid over a 30-year loan by more than $30,000 at today’s rates.
Going with the government
Government-backed mortgages include home loans offered through the Department of Agriculture, Federal Housing Administration, Veterans Affairs and other federal agencies.
Those wanting a government-backed mortgage need a credit score of at least 580, Perry said. The scoring bar is much lower for these mortgages than for conventional mortgages.
That makes them a good fit for homebuyers struggling to find funding because of their credit score but it comes with a tradeoff.
“The tradeoff is that these programs come with additional costs or restrictions, such as mortgage insurance, eligibility limits, or property requirements,” Havard said.
For example, Federal Housing Administration mortgages, also known as “FHA loans,” require the buyer to move in within 60 days of closing. The home must be a primary residence instead of a flip or investment property. The home must meet minimum property requirements that ensure the home is “safe, sound, and secure,” according to the FHA.
Borrowers with credit scores of at least 580 who are approved for an FHA loan can make a down payment of 3.5 percent, a relatively low amount compared to the average first-time homebuyer down payment of 6 percent to 9 percent, according to the National Association of Realtors.
Credit scores of 500 to 579 can still get an FHA loan, but they have to make a down payment of at least 10 percent.
The rates borrowers pay for FHA loans aren’t very sensitive to the borrower's credit score, said Jeremy Shachter, branch manager at lender Fairway Independent Mortgage Corporation.
“Government loans like FHA and VA loans are not as sensitive to credit scores as much as conventional loans,” Schachter told The Independent in an email. “If you have over a 640 credit score, you would get the same rate even if you have a 760 credit score.”
This article is sponsored by Credit Karma. We may earn a commission if you engage with their services using links in this article.
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